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Category: Economy & International Relations

I read good right wing papers but this is why I don’t vote for the right wing

Published April 7, 2010 by Jo Jordan

Top ranking political online newspapers

If you are interested in current affairs, I highly recommend the Indian blog, The Acorn.  Always clearly & succincly written, you will get a daily editorial on international affairs on the sub-continenent that is informed and analytical.

The despair of the right

Dedicated as I am to reading their thoughtful and professional analysis, I’m not sure though that I can subscribe to their world view.

One of their themes is to dismiss the righteous and the cynical as being unable to engage in ‘real politik’.

Some time last week, they published a good parable about two fishermen.  One fisherman was virtuous, never broke any rules and did not catch enough food to feed his family.  The other was cynicial.  He knew that other people were more successful fishermen but never learned their skills.

Accept the challenge by the right

I think it is always useful for the pragmatic ,and even resolutely right-wing, to challenge liberals and lefties. We should take right-wing taunts as a reminder that sometimes we are lazy and use the notion of being right to avoid hard work and the anxiety of challenging  moral choices.  It is also true that cynics are lazy, if not feckless, and cover their lack of application with curmudgeonly commentry.

But don’t buy into their existential despair and ’emperor’s clothes’

I don’t buy the argument, though, that we have to cheat to meet our worldly needs and our reasonable worldly need for status.

Why can’t we simply decide to make money honestly?  Yup, I know they are calling the virtuous and the cynical as sour grapes. That is a reasonable call.  But I think ‘emperor’s clothes’ are worse.  Pretending that sour, rotting grapes are sweet and delicious is just as bad, as dismissing the victor’s grapes as sour.

How I know this is your emperor’s clothes and not my sour grapes

There has to be a middle way of defining a fresh ripe harvest and working honestly, with others, to achieve it.  I want a prize worth having.  Sweet delicious grapes, please.  You may be sitting on a bigger pile.  May be all your grapes are delicious.  But do you know, I don’t believe you.  You are so concerned with losing that you would lie rather than be seen to lose.

That is the real difference between the right and the left.  You want to win even when there is no prize.  It is so important to win that you will invent the race and describe a prize that doesn’t exist.  You say to us. Prove it.  Prove the prize doesn’t exist.

Hmm.  I don’t have to.  If the prize existed, you would be busy enjoying it.  You wouldn’t be trying to get my attention!

Show me the prize or race just for fun!

As for the left, we want the prize and we won’t compete unless there is one.  Yes, I know.  When we compete and lose, we justify our lack of ability by claiming there is no prize. Yes.  That happens a lot.   Right wing politics has its share of curmudgeons though.  Hegemony is rampant on the right.  But we wouldn’t be whining if we thought there was no prize.  It is up to us to go out and get it.

I want to see the prize first.  The lads and lasses that just want to race up and down for prizes that don’t exist can be my guest.   I might even join them sometimes for fun.  But I am not going to kid myself that they are doing anything more than that.  This is leisure activity. Not politics or economy.

Living with the compulsively competitive right wing

So indeed there will be fisherman who are unsuccessful and cover up their lack of success under the cover of virtue or cynicism.  But if the others are so successful, they wouldn’t give a jot about the unsuccessful fisherman.  They would not necessarily be callous either.  They would make the unsuccessful offers.  They would discretely ensure their children were OK.  They would even rein in any unfair practices.   But they wouldn’t be threatened by the unsuccessful.  Why would they?  They have the prize.  Or do they?

All they are doing is negotiating for a prize that they believe they would win.  I think this is what Warren Buffet calls being attracted by the terms of a sale.  “We want a race so we can win a prize.’

Sorry.  We aren’t going there.  First, the prize is too important and your racing takes up too much time.  Second, you won’t necessarily win and then you will whine.

We’ll aim for the prize.  We’ll even set up races and prizes so you can have fun.  But aren’t turning everything into a race to satisfy your compulsion to win (which you won’t necessarily do anyway).  We just aren’t going there!

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We can afford what we create

Published March 21, 2010 by Jo Jordan

The golden rule of economics and politics

It is all that we need to know really.  We can afford what we create.

Our plan of work tells us what we can afford

And from the golden rule ~ we can afford what we create ~ we have two other rules.

It is better to work with others than alone

None of us can create everything we want, or need, to afford.  It matters that we belong to a bigger group or tribe.

The collective to which we belong tells us what we can afford.  Our family, our company, and yes, the country, the sovereign state to which we belong, define what we create and our lifestyle.

When I am writing, someone is creating the electricity that powers this laptop.  While another person is making my washing machine (running in the background), I am looking for easy-to-understand writing on our economy that cuts through the obfuscation delivered by politicians.

The system matters.  Our place in it also matters.  But the whole,  the collective, is what we must keep our eye on.  Where we draw the boundary matters.  Because we can afford what we can create. Who is we.  Between us, we create what we can afford.

Draw a circle around who we trust, and who lives and breathes because we live and breathe, and we have defined what we create and what we can afford.

If that circle is too small to define the lifestyle we want,  there is our first task.  Widen the circle. Widen the  magic circle of trust.

We need leaders who instinctively read that circle and work with our neighbors, suppliers and customers to widen our system.

Tell me what you are going to do.  Economics will follow.

The second rule that follows the golden rule is that value comes first.  We can check the economics afterward.

The clear writing economist, Ann Pettifor, makes this point well.

The central bank in each country should set the money supply to match the economic capacity of a country.

She doesn’t like using a household or small company as an example.  So let’s use a giant multinational.

When a giant company needs something done, and they are pretty certain it will work out, they put up the budget and let the managers and workers get on with it.  Money comes first in time.  But profits, and worrying about profits comes last.  Paying back the investors comes last.  We will recover our money provided we only put up the amount of money that the work was worth.

But we will never make money unless we have the money to bring a team together and get going.

The skill in managing, and financing, a major investment is understanding what venture is worth.

Before you tell me that business does not work like that.  It does.  Don’t confuse where you work with successful companies and successful public service.  I’ve consulted to them.  I’ve led in them.

I have two rules:

  • What do you want to do?
  • After you’ve told me, we’ll run the numbers to make sure it is economically viable.  If not, we go back to question 1.  What do you want to do? We begin with the value.  We begin with what you want to create.  Economics follows.  If you want to do it, we will back it.

We can afford what we can create

These are our questions.

What can we create?

Who do we create it with?

What is our potential that we are not using?

To find our potential: ask people.  What do you want to do?  When that is on the table, we’ll run the numbers.  If the numbers hold together, we back their plans.

The golden rule and Britain’s government deficit

Ann Pettifor puts this story in the context of Britain’s government deficit(which is large but not nearly as big as the bank bailouts).  She is standing for parliament but don’t let that dissuade you.  She writes clearly.  That alone is a good reason for electing her.

The collective, Britain, defined by the reach of the Bank of England and the reach of the pound sterling, has potential.   Fund it.  A simple message.  Fund what we can create.

The only question that I ask, and I’ll go to her blog now to ask the question, is how quickly will we recover the money?  I think I would like to see the numbers run by month, quarter and year.  Then I would feel more comfortable.

Then my trust would increase  Then the collective strengthens.

Sometimes economists (and lawyers and accountants) forget that everything they do depends upon us believing it.  Yes, the outer boundary is the reach of the pound sterling.   The real boundary is our belief in each other.  Some people call this belief ‘confidence’ but that is the wrong measure.

Confidence  is self-efficacy.  The correct measures is collective self-efficacy.  The question for that is “Do I believe that you will do better economically this year?” When we answer yes to that question, then we will boom.

But first the question of timing.  I must ask Ann that.

For now I am thankful for finding that quotation.  Simple.  Pithy.  We can afford what we create.

Followed by my two rules.

  • People matter.  Who is we.
  • We’ll check the economics after we have decided what we want to do.

P.S.  I googled “we can afford what we create” and I didn’t find any other reference to it.  Did Ann coin this phrase or is it a well known economic expression?

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In politics, motivation isn’t important

Published January 4, 2010 by Jo Jordan

In politics, motivation doesn’t matter

A political science professor once said to me “In politics, motivation doesn’t matter.”  I don’t think I have ever really understood that until I read the current Economist debate on “Who is leading the fight against climate change?”

Pro: Peggy Liu
“For Chinese people who see, smell and touch pollution every day, climate change leadership is closely related to personal health.” Read more

Con: Max Schulz
“China is not pursuing lower energy consumption per unit of GDP because of warming. It is pursuing it because it wants to be rich.” Read more

Does it matter why the Chinese reduce emissions. Surely if emissions are important then it is just important that they do?

How much credence do you give to motivation?

I’m trying to figure this out here.

I think that maybe when we feel out-of-control that we look for sound lasting relationships.

We are more likely to manage by outcomes when we have control.

What gives us a feeling of control?  Knowledge, a well-developed world view, the temperament of no-drama Obama, a willingness to accept that other people will act in their own interests?

Another spiral effect, I think. We trust because we trust.  And we don’t trust because we don’t trust.

Maybe when we worry about the motivation of others, we should stop and list all the factors that ARE under our control.  What can we count on?  How would we see the world then?

Am I on the right track?

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5 questions to find the best place to be during a prolonged recession

Published November 19, 2009 by Jo Jordan

Where is this recession going?

I’ve spent some time following economic information about the recession and I think there is a fair chance that it will be L shaped.  I think the financial shock has been so bad that it is not good enough to wait.  I think the correct analogy is that we have had an earthquake, the house has cracked, and we would be smart to attend to the foundations.  In fact, why not take advantage to ‘build a better’ house were we have a more comfortable, more sociable and more exciting life.

I think that is the project politicians should be attending to, and I think we should too.  The sooner we identify the kind of “house” we want to live in, the sooner they can get on with organizing it!

Where do we find exciting opportunities during a prolonged recession?

As a psychologist, I listen out for the way people describe things. I look to the structure of their statements to identify what really excites them, what is going somewhere and where there is room for other people.

#1  Does the person describe action?

Do I know who is doing what, when, where and how?

#2  Is this a project that other people can join?

Do I know when and where other people can join the party?  Is the description an invitation to me and others?

#3  Is the person responsive when other people chip in?

Is the person looking for responses and did they allow time to reply to people?  Did they expect people to want to join them?

#4  Is the person curious about other people?

Does the person respond to inquiries and suggestions with requests for more information or elaboration?  Do they believe that other people can add value to their project?

#5  Through the entire conversation, does the person keep their eye on their goal?

While the person is responding to inquiries and following up, do they maintain their momentum and movement toward their goal?

Here’s my little acronym: AIRINGOAL

Action

Invitation

Responsive

Involvement

Goal

5 questions to tell whether a businesses is going somewhere

These are the 5 questions I ask to tell the difference between a business that may look thriving, and may go the same way as banks and newspapers, from business that will thrive despite the profession.

Once we have found a business that is vital and exciting, then we can ask more detailed questions about our role within it.  More on that tomorrow!

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Bless the baby boomers! Exploit the strategic pivot points!

Published November 14, 2009 by Jo Jordan

Annoyed by purveyors of the ‘way back machine’?

I am.  I shouldn’t listen to people who tout nothing but nostalgia seemingly unaware of what is happening now.  But if we don’t listen, we are in danger of losing touch ourselves.

Opportunities in other people’s dilatoriness

The big question, then, is how can I listen without just being dismissive or contemptuous?

I am tidying up my blog right now and I came across this sentence in a long post.

I would look for opportunity precisely at the point we say “I’m alright Jack”.

Exactly!.  If I am dismissing someone’s views for being out-of-date, then I am accusing them of being half-asleep.  If I am right, their customers aren’t being looked after very well. They’re mine for the taking!

Celebrate other people’s slowness!

So I will keep listening.  Every time I feel impatient and annoyed by what I consider to be uninformed and patent nonsense, I will

  • jot down the thought
  • think about who the person serves – who are their customers?
  • think about what their customers want and need
  • think about what I can deliver
  • and see if there isn’t a profit in my patience!

The opportunity is where someone is saying “I am alright Jack”.  That is the strategic pivot point!  What fun!

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Not make toxic junk – not enough – nurture the polity

Published November 12, 2009 by Jo Jordan

Toxic junk

“The great challenge of the 21st century isn’t churning out more toxic junk – it’s learning to make stuff that’s not toxic junk.” So said Umair Haque in today’s Harvard Business Blog.

Pointless work

Umair’s challenge reminds me a science fiction book that I read years ago.  Some bright young man, working in a high rise building slowly worked out that the papers in his in basket, and every one else’s in basket, never left the building. They were working on a closed make-work system and the papers were designed to circulate endlessly without achieving anything in particular.

Most people know that they work in non-jobs. I’ve even asked people commuting on trains into London what they do.  Some people laugh outright and say nothing.  Others will tell me some detail – like how to maintain the railway tracks.  Few people refer to the bigger picture though.  They know where the water cooler is.  They know when they get paid.  They haven’t much of a clue about what their organizations do.  More importantly, they don’t care ~

  • They assume it is normal not care.
  • Feedback loops are very slow so they don’t see any consequences.

Provided money is paid into their bank accounts, they assume it’s fine not to care too much.

Empty lives ~ lives we cannot call our own

Sadly, most of us do not feel that we are able to live full lives.   And even if we wanted to care, do we have the understanding or the competence to manage systems?

Systems surprise us

Lets take the example of Facebook that Umair uses in his example.  Facebook grew out of a college-student prank.  I am sure many people think it is evil. Without knowing the facts, I am sure College Adminstrators thought that at first. Now they just send requests for donations!  Simply, Facebook is a good example of how good things come out of laziness or mischievousness.   Our drive to take short cuts can innovate.

The converse is also true.  Many of the people who are sleep-walking through non-jobs believe they are doing good.

Very simply, the interaction between the system as a whole and our individual actions is too complex for the one to be reducible to the other.

Systems must be managed as systems

We have to watch the system itself.  We need metrics for a system, and we have to understand its possible trajectories.

We have to understand the complex way individual actions interact with the system and the slowness of the feedback loop connecting the two.  Because of that slowness, individuals need feedback about their individual actions over and above the trajectory of the system itself and their effect on the system.  All three sets of information must be available.

Let’s use an example uncluttered with the emotion of who-did-what

Let’s take the weather.

Weather systems vary world over and predicting the weather varies.   In some countries, the weather is very predictable.  In others it is quite changeable.

I lived in a place where it only rained from November to March. In that time, we needed to

  • Grow all the food we needed
  • Collect all the water we needed for the dry months
  • Protect ourselves against too much rain (floods, in other words).

It was well known that in the north of the country, that the rains would fail in 1 year out of 3.  We would never know which year the rains would fail and if we were wise, we kept enough food and water for three years (1/27 or about 3% chance of running out).  There was still the possibility of a drought four years in a row.  So we needed a plan for that too.

Managing at system level

In the south, rains failed on average, every 2nd year – so they had to plan harder.  In the north, we knew the basic parameters and we knew we had to

  • build enough dams
  • move water around
  • store food
  • and build big drains because when it rained, it rained!  It came down in buckets.  The drains had to be massive.

We could mismanage this system easily.  A full dam looks like excess.  Why not use the water?  Why be so prudent?

We could blame shortage of water on climate change.  It could be true, but if we haven’t stored enough water for what we knew already, which was the average frequency of droughts ~ well what can anyone say?  Recklessness is recklessness.

The system can be managed at system level.  And should be.

Managing at individual level

Now let’s look at the actions we needed to take at individual level.  My individual actions will not affect the presence or absence of a drought!  It won’t affect the presence or absence of dams or drains either.  If I judge my individual actions by the state of the system, I will get confused and become helpless and inactive.

But if I know that the dams are insufficient and the price of water will be high during a drought, I can store water for gardening and non-drinking purposes like flush toilets.  That is a judgment I make as an individual. I can ask myself will I have enough water and what am I going to do about it?

Actually, the house I lived in was plumbed to use a reservoir of water collected from the roof, but the reservoir had been removed when adequate dams had been built.  So my decisions work both ways.  Sometimes the munificence in the system allows me to take no action.

The general rule is that I had a multiplicity of choices to make at individual level to ensure that I had sufficient water for my needs and i made my decisions by taking into account all the factors at the system level.

Managing at the collective level

We can also manage our collective response at system level by voting for more dams, or by cooperating or not cooperating with rules prohibiting sinking boreholes to use underground water, for example.

My individual action alone won’t influence the system but some of my individual actions have some influence on the system!

Acting effectively

Now that I understand the system and the actions available to me, I can decide what I am going to do to maximize my interests.  These are steps that I take.

  1. I learn the basic parameters of the system to be managed (enough water for three years).
  2. I judge the health of the system for myself (shall I keep my reservoir to collect rain water or not).
  3. I judge the state of the polity and figure out whether to engage to improve the system or not, as the case may be.
  4. I judge whether I will act against public interest and use underground water (for example).

Those are my choices.  Similar choices will exist for any system.

If I were to pick on any one feature that can be influenced to change the state of the system, it is the state of the polity.  If I cannot pull people together, I have to wonder what will happen to the systems.  Will they spin out of control, as they did with the banks, and if that happens what will I do then?

I think what Umair was trying to get across was that many people have already opted for 4. They don’t care and are cashing in and running ~ though it is not quite clear where. But then when we are deranged, do we need a ‘where’?  If that is what he meant, then I agree, and I think we should turn our attention to engaging effectively – to pulling people together.  That won’t stop disasters. After all, even in a healthy polity, we might still have 4 droughts in a row.  But we can be certain that in an unhealthy polity, we withdraw, we become apathetic, we don’t even try.

Managing systems

Time to cross reference with the work Donna Meadows has done on managing systems and the work Karl Weick has done on systems.  Enough for tonight while I look those up!

My three points are this

  • The systems as a whole must be monitored at system level
  • Our individual actions will be judged against a simple criteria of fulfilling our own needs
  • We also have some individual actions that affect the system.
  • Because our individual influence is weak, we should put our energies into building involvement in the polity.  The more people are engaged, they less they will behave cynically.

But nothing will insure against bad things happening.  The system happens at another level.  Paradoxically, when we understand that, we are more likely to manage our affairs in ways that system events don’t destroy us.

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Pretentiousness: don’t spin and scam in a world governed by necessity

Published November 7, 2009 by Jo Jordan

Pretending to be what you are not

We do it a lot.   It is the hallmark of our institutionalized society.  We have these ‘roles’ which we think we are supposed to fit into.  We think other people expect us to fit into those roles too.

So we try to dress the part, look the part, say the right things.  Why?  So we will be treated as if we are the part.  We are part of a large scam – and we know it.

Economic and other shocks reveal the Emperor’s clothes

When our lives are upset in some way – when our expenses are challenged, when our business model is scuppered by the internet, when our business contracts and our spending power takes a dive through a leaner cash flow or outright redundancy – we often find ourselves unduly taken up with  “how will people treat me?”.  Will I be taken seriously without my big car?    <Panic and dismay>

But don’t make it worse by concentrating on the wrong thing

When someone has the rug pulled out from underneath them, it is sad to watch.  Not because they lose their status but because they hang on to an irrelevant formula.

Get your priorities clear

Mate, just get your priorities clear.  If a tsunami had swept over your town, you wouldn’t be stopping to blame yourself or to score points over you neighbour.  You’d get to fundamentals.

  • Where are the people I love?
  • What are the immediate threats?
  • What do we have to feed us, wash us, keep us safe?  Where is clean water?
  • Who around us needs help and can we help them?

Get real!  It is so much easier!

Stop acting.  Spin and scams looked good but it is time to get real

If you are feeling very uncomfortable in your skin or in your current circumstances, maybe stop acting.  The old model is broken.  Well, and truly bust.  Don’t spend another thought on it.  The tsunami has come . . . and gone. We are dealing with the aftermath.  We can reminisce later. We can ask the climatologists what happened later.  For NOW, we only want to know what happens NOW

Judge people by what they can deliver now.  If they want you to play a part, do you really believe they have anything substantial to offer?  Really?

Imagine arriving at a Red Cross tent after a tsunami and dealing with an official who is pretentious – who makes you fill in daft forms  and play games.  You will be quick to work out whether they have food for your children in their tent or not.  And you will do the minimum to get it.  You will get it, but you will do the minimum.  These are clearly not people to be bothered with.  You may be shocked that the aid workers are scam merchants but, really, you will be busy, so you will put aside the shock and concentrate.

If there is another tent where food is handed out briskly and you can get on with your life, you would choose that tent.   Vote with your feet.  Hanging around a badly run tent full of pompous officials who demand you look the part in some imaginary narrative will not get you anywhere.  The tent might look good, but hang around only so long as they deliver what you need NOW!

Challenge your own pretensions

It really is important to get real.  No one owes us a living, as the saying goes.  Do today what needs to be done today.

We also owe a living to no one except the young, the sick, the infirm and the aged who cannot contribute any more.  We have to learn to give unto Cesar.  Pay the tax that we have to pay. Fill in the forms that we have to fill in.  To use the contemporary expression “fake like they are human”.  But ignore them otherwise.  You are too, too busy, coping with what needs to be done today.

If they think less of you because your world has fallen apart, that is their lookout  They are just not helpful.

But don’t lose more friends because you are worried about spinning and scamming in a world governed by necessity and real challenge.  Attend to what is real.  Leave the spin merchants to their imaginary life.

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Will you look back in wonder? Or are you sleepwalking through an institutionalized life?

Published November 6, 2009 by Jo Jordan

Is your life institutionalized?

Some many of us are institutionalized.  We live our lives as if we are on a long distance flight.  I am travelling from Heathrow to Auckland via LA.  My, doesn’t that feel good.  I am going somewhere you want to go, on a route you would like to follow.

But that isn’t life.  That is sitting in a sardine can for awfully long time doing what we are told.

In real life, we set out, much like Dick Whittington and his cat.  We are going to London.  We don’t have a map.  In truth, we aren’t really sure that London exists.  But we know we are going.

How do you cope with the muddled narrative of an open ended adventure?

Because we are going, but are quite sure where and how, when people ask us what we are doing, we sound muddled.   During the journey, we know what we have just left and what we have just seen.  We know the obstacles that face us right now and that might bring our entire project to an end.  People expect to hear our destination and our route.  Without an institutionalized storyline, we sound disjointed!

If our story is clear, it is yesterday’s action!

It is only at the end of the journey that we can tell the whole tale and give it a beginning, middle and an end.

I am still tidying this blog and re-sorting posts I wrote as much as two yeas’ ago.  Each post has been about something I did during that day, or read, or thought.

As a I look back, I am amazed.  Did I really get involved in that and did we think that clearly?   It seems so.

And example of looking back in wonder

Here is a post from over 18 months ago in the aftermath of the March 2008 election when Zimbabweans around the world were in a hiatus without widely accepted election results.   We were writing to the late President Mwanawasa of our neighbours, Zambia, who was chairman of SADC at the time.  SADC is the southern African equivalent of the G20.

  • We were involved.
  • We were imaginative.
  • We were positive.

Beat that can you?  I am impressed with us. This is a fantastic case study of positive psychology of collection action in dire times.

But note at the time, this post got hardly any attention.  Yet, what we were doing was quite revolutionary at so many levels.  Real life is muddled.  Real life is unpracticed.

When it is smooth, when it is definite, it is not real life.  It is just the unthinking sleepwalking of institutional existence.

 

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You will understand the economic indicators of the US with this visualizaton

Published November 6, 2009 by Jo Jordan

Did you study economics?

I’ve never studied economics formally but I wish I had. Not because I think Economists get right.  Some of my best friends are economists (:) really!).  They are intelligent, thinking people.  But they rarely get anything right.

I wish I’d studied economics because I think it is important to understand economic statistics.   How can we function without knowing where the economy is going?   How can we make political choices if we don’t understand what is happening around us?

Thankfully contemporary visualizations help us understand economic data

I might be let off my need to improve my economic literacy by the accelerating trend to slurp numbers and arrange them so that more of us can understand them.

Here is a marvelous visualization of the US economy.

On almost every indicator, the US economy seems to have bottomed and turned.  It’s a  snappy little presentation allowing us to click quickly through ten indicators.   The data readjusts with a springy look which reminds us, I think, the short-term instability of economic data.

Before I saw this visualization, I hadn’t appreciated how well the American economy is doing.

I wish we have an equivalent presentation on UK economy.

Who is audacious enough to hope?

Do have a look.  I find myself not daring to hope that they are true.  I wonder how many more people want to wait a bit before they get their hopes up?

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What we know and don’t know about future labor markets

Published October 31, 2009 by Jo Jordan

Are our markets efficient?

Gee, I have been so buried in writing proposals, I no longer have any idea of which day or week it is.  Rather literally.  But it is in writing proposals that we realize just how inefficient the market economy is.  All these people marketing, selling, bidding, cajoling.  Do we really increase the value of the economy this way?  Isn’t this time wasting much like the perennial security guard at every doorway in a third world country.  Doing nothing, going nowhere?  Don’t you get incensed at the waste of your time?  Let me explain further why it affects everyone.  You, me.  Our sons. Our daughters.

Flexible labor markets

You all know the concept of a “flexible labor market“, don’t you?  If not follow the link to a clearly written A level crib sheet.

Good markets

Flexible labor markets are based on the idea that a good market  “clears”.  A market is good if I can bring my tomatoes and customers come and buy them.

The price is not determined in advance. The price is allowed to change with supply (number of people selling) and demand (number of people buying).  And as we all know, at the end of the day, the price can drop significantly as sellers contemplate no sale.  Equally, the best stuff will sell at a higher price early in the morning.

Good labor markets

When we come to labor markets, the idea is that you and I, sellers of labor can go to the market and sell our goods, that is, our time and expertise.  If there is a good market, we will be bought, when we want to be bought; and buyers will find someone to buy, when they want someone to buy.

Labor markets that you and I know

Of course, labor markets are not 100% flexible.  We are blocked in by contracts.  The employer guarantees to give you work and to pay you on time.  You guarantee to do work and have to give notice if you want to change employers.

Rigid labor markets

Some labor markets are very inflexible.  I believe in the UK, 30 years ago, if we wanted to move a telephone in a student dormitory, it would be a nightmare.  Why? A telephone technician wasn’t be allowed to screw the device onto the wall.  That was the carpenter’s job.  If this story is not 100% accurate, then it was similar.

Not everything has changed

The “defined benefit” pension scheme also adds rigidity to the markets.

A defined benefit (DB) scheme means we pay in a fixed % of a our salary today for the right to draw a pension at a given age (usually 65) at 66% of our average of last three year’s salary (or similar calculation).

The importance to this calculation to what I am saying today is not the pension, much as it is on everyone’s minds, but that the 66% was based on an assumption of working for 40 years out of 60 for one employer (starting in your early twenties).

Here you can see the legacy of rigid labor markets that we haven’t sorted out, even in theory.

Why do systems like defined benefit pensions distort the labor market?

Implicit in your monthly donation of a fixed %, is that you will stay for 40 years.  If you leave before then, you will pay a heavy financial penalty.

So most people stay.  Every year, some people retire and we can replace those with 20 year olds while everyone moves up a notch.  Neat?

Yes it is, BUT

.  .  . this model doesn’t allow for radical changes in skill.  And it only works when people do retire – which they haven’t been the case with the bulge of the baby boomers.  Of course now the boomers are approaching retirement, organizations running this model will suddenly need to take on a lot of young people, some of whom will not be able to get the experience they need quickly enough to replace people who are leaving.

Equally, if you have to take people on for 40 years, as an employer you may think twice.   It is much more convenient to be able to ask someone to leave when you have no work for them or cannot afford to may them.

Why employers like a flexible labor market?

So employers like a “flexible” labor market.  They want it to be easy to ask people to leave.

What is the payoff for us?

And the payoff for us is that

  • young people are more likely to get “starter” jobs
  • we should be able to move employers more easily
  • the economy should be more vibrant with a better match of skills to changing conditions.

But what a muddle

The downside is that we haven’t thought this through.

Pensions and in the States, health insurance, are tied to employment.  So employees are unable to move.

If employers don’t provide these benefits, an underclass of employees develops.  In the trade this is aptly called the secondary labor market – cheap and disposable.

And where does this leave employees – people of working age

My biggest concern is that when a labor market is massively flexible, how do employees – that is you and me – the sellers of labour, see far enough ahead to know what to invest in?

Of course this is an issue in all business.  How do farmers know how many tomatoes to plant?  How does Warren Buffet know what stocks & shares to buy on the stock market?

They do it in three ways:

  • They form institutions – trade associations or their own firms – to do research on markets and to influence markets through lobbying and marketing.
  • They make long term contracts – e.g., agree to sell to TESCO’s at a pre-determined price
  • They get better real time information on markets.

Think of third world farmers contracting with FairTrade to sell you coffee.  They are doing it less for the price and more the stability of the contract.

Think of third world farmers who adopt mobile phones at the speed of light because they can find out prices readily in local and international markets.

What the theorists haven’t delivered

So why then do we assume

  • Employees (you and me) don’t need information on future prices to decide how much to invest in skills today?
  • Employees don’t need sane coherent contracts that allow us to complete a season.  A season may be 6 months to a year for a farmer.  Our investment in a 3 year degree is repayable over what period with what certainty?
  • Employees (you and me) shouldn’t band together to form trade associations to research and influence markets.  I know that is what unions do, sort of. I know that is what good professional associations do.

My question to you

My question today, and I hope some people can answer it, as I am a noobe in this part of the world, is

which political parties have an explicit agenda to make sure each and every person has sufficient information to make informed decisions about the investment in skill.

I don’t think governement has to make decisions about our investments for us.  But it does need to make sure there is an environment in which institutions who repesent us emerge (and do their job well).

Where does a young person in the UK and the USA find out this information?

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